Monday, July 22, 2013

Marshall Auerback, Stephanie Kelton and L. Randall Wray — A Plan for All the Detroits Out There


MMT to the rescue. Pass it on.

Note that this plan is based on job guarantee but not the MMT JG in that compensation would be indexed so that the real wage would remain constant against inflation.

New Economic Perspectives
A Plan for All the Detroits Out There
Marshall Auerback, Stephanie Kelton and L. Randall Wray


36 comments:

Unknown said...

Tom, I'm pretty certain this is the MMT JG they're proposing. I can't see why they would propose some other sort of job guarantee program.

Tom Hickey said...

and the wage should be periodically adjusted to reflect changes in the cost of living and to allow workers to share in rising national productivity so that real living standards would rise

Unknown said...

From the 'MMT primer':

"It is necessary to keep in mind as you read the following that we are talking about a program that pays a fixed (but periodically adjustable) wage (plus benefits) that becomes the floor in the economy".

http://neweconomicperspectives.org/2012/04/mmp-blog-44-the-job-guarantee-and-macro-stability.html

"The wage would be set by government and fixed until government approved a rate increase—much as the minimum wage is usually legislated".

http://neweconomicperspectives.org/2012/03/mmp-blog-43-job-guarantee-basics-design-and-advantages.html

Ralph Musgrave said...

JG is a medicine that is not well suited to the “Detroit illness”.

Detroit primarily needs an increased supply of REGULAR jobs, not JG jobs (though there’d be no harm in it having a JG job/regular job ratio much the same as anywhere else). In the UK, high unemployment areas used to be dealt with by offering investment subsidies for firms investing there. That brought more regular jobs to high unemployment areas.

Plus the JG wage is not much different to what the unemployed get by way of unemployment benefit / insurance. Thus loads of JG jobs in Detroit wouldn’t enable the city to escape it’s most pressing problem: possible bankruptcy.

Tom Hickey said...

"It is necessary to keep in mind as you read the following that we are talking about a program that pays a fixed (but periodically adjustable) wage (plus benefits) that becomes the floor in the economy".

As I read today's post they are talking about indexing rather than occasional one-offs when govt decides to do it. For the JG wage to serve as a price anchor (MMT JG), it can't be changed often in response to rise in price level.

I don't see how indexing is compatible with a price anchor.

Unknown said...

Ralph

a combination of the two would be good: investment incentives to encourage good quality jobs and a JG to maintain bottom-up demand and to keep people working, employable, healthy and optimistic, rather than sitting on doorsteps and drinking because there's nothing else to do.

Unknown said...

I'm guessing Detroit could also do with some substantial infrastructure and environmental investment.

Unknown said...

Tom,

"I don't see how indexing is compatible with a price anchor".

A price anchor isn't necessarily something which stays fixed for all time. If you define price stability as a reasonably low and steady rate of inflation, rather than 0% inflation, then the wage floor would rise over time. For it to serve as a price anchor it would have to rise at a rate which is compatible with the stable inflation target, and not more than that.

This does raise the obvious question of how you would respond to a supply shock, such as an oil price hike. Would you accept higher inflation and jack up the JG wage too, or keep it constant?

Randall etc don't seem to address this, but nor do they say the JG wage should be automatically indexed.

Tyler Healey said...

Detroit needs one billion dollars. I believe the Reagan administration called it "revenue sharing" (aka money).

Malmo's Ghost said...

No matter how it goes down, the people who worked their butts off for decades should get to keep all of their mostly meager pensions. That's the bailout I'm speaking of. There's plenty of spare productive capacity in the US to make this kind of bailout work too. What Detroit becomes from here is whole different matter. But not living up to the obligations promised to the workers would be a grave dereliction of societal duty.

Dan Kervick said...

The job guarantee is an important piece of the solution, Ralph. Implemented correctly, it can help end poverty, reduce inequality, provide countercyclical demand stabilization and shift returns away from capital toward labor.

It's not intended to be a magic bullet solution to every national problem.

The JG wage would be significantly higher than what a comparable worker receives in unemployment benefits. But in addition, it would be reliable and stable - something people can count on. That will also help with demand leakages due to instability and anxiety.

Tyler Healey said...

Ironically, President Obama criticized Romney for saying we should let Detroit go bankrupt.

Unknown said...

the importance of the JG follows from seeing the economy as being demand constrained as well as supply constrained in certain ways.

Malmo's Ghost said...

For the record I loathe the JG as laid out in the link. It doesn't go nearly far enough in terms of compensation (the minimum wage aspect of it is particularly insulting). Since it doesn't really address the structural problems native to wage labor, I'm afraid it's ultimately a useless and temporary bromide. If bright minds want to jump in with solutions to unemployment then a good start would be to mandate a shorter work week or even a substantial rise in the minimum wage. While they're at it they can fix trade policy, tax all income over $200k at 90%, resurrect union along with collective bargaining and remove person-hood from corporations. Absent those steps, among others I've left out, then forget a JG--unless they are somehow linked to where the JG leads to these and other structural changes. In the interim, and even though it might not be much better, I'd much prefer a BIG to a JG.

Tom Hickey said...

Agree. JG should be for mop up of the residual after fiscal policy has done the brunt of the lifting.

Malmo's Ghost said...

I pine for a system that would give us a significant reduction in social pathologies. To me that should be our ultimate goal. A good start would be to take some of life's uncertainty out of everyday existence, such as providing free universal health care, free vocational and or college educations, along with a mandated shorter work week (between 25-30) hours. If wages aren't sufficient to provide food and decent and safe shelter then the state can make up the difference, absent stigmatizing said recipients. For once, we could achieve some semblance of economic and mental health simultaneously. Might even get people of all stripes liking each other again too, along with a more sustainable way of living. Every man for himself could be thrown into the dustbin of history.

Tom Hickey said...

Every man for himself could be thrown into the dustbin of history.

Before that happens, 'everyman for himself" and screw the women and children will likely be taken to its logical conclusion, given the momentum and level of political dysfunction. Dystopia, here we come, to prove a point.

Malmo's Ghost said...

Tom,

I intentionally block that possibility out of my thought process as a coping mechanism. Denial is one of my pathologies, I guess.

Unknown said...

The state can provide the money but it can't necessarily provide the real goods and services that are needed for us to enjoy so-called "free" healthcare, education, etc. Until we have some sort of robo-utopia, people will have to work to produce those real things.

Unknown said...

when thinking about how to make the world a better place you have to also consider whether mandating a 25 hour work week, keeping a portion of the population unemployed and on benefits (or a BIG), etc, might hamper the ability of the economic system to actually produce those real goods and services that are needed for us to enjoy wonderful things like "free" healthcare.

Malmo's Ghost said...

First, a 25 hour work week would make more, not less, jobs available if the output goals remained constant. I said nothing about doing less work en masse.

When I say free, I don't mean at no cost. I mean a socialized system, say on the German model, or an approximation thereabouts.

On the other hand, maybe we do need to do less work, or at least do the needed work more efficiently and sustainably.

Unknown said...

if you want a system in which people generally receive the same income from 25 hours work that they currently get for 40+ hours work you have to ask where all the extra production comes from to justify that. Does it come from a massive increase in automation? Or can it only be achieved through a redistribution of wealth (via taxes for example)?

Unknown said...

Potentially a huge and permanent increase in 'savings desires' could offset the effect of paying people 40+ hours wages for 25 hours work, but that seems a bit unlikely.

Tom Hickey said...

Thing is that rising wages result in technological innovation, which then makes economics sense. Low wages are an obstacle to tech innovation. The innovation may be available but it not scaled up until it becomes economically viable. That's what rising wages accomplishes.

Anyone staying up on the trends in business is aware that as emerging country wages rise, robotization is planned. A lot of the US auto worker jobs went to automation and robotics too as compensation and worker protections increased labor cost.

The question, of course, is where the demand for the increased supply is going to come from if workers become less necessary in the production process.

Malmo's Ghost said...

Y, the extra production comes from the now unemployed finding work to fill the void to make up the difference, as long as output goals remain constant.

As for redistribution of wealth? I've no problem with that.Actually I'd encourage that end.

Malmo's Ghost said...

JG alone doesn't even come close to keeping us from the abyss:

https://www.youtube.com/watch?v=HoFZcGBWRdQ#at=252

Unknown said...

Malmo,

"the extra production comes from the now unemployed finding work to fill the void to make up the difference"

but if you mandate a maximum 25 hour week, people will still want to paid the same amount that they were getting for a 40+ hour week.

You can't just say to people "oh just accept a lower wage, wprk less, and spend more time with your family".

Unknown said...

*work

Malmo's Ghost said...

Y, It's a process--a slow process. Incremental, if you will.

Calgacus said...

Malmo's Ghost : the minimum wage aspect of it is particularly insulting

That a job guarantee is at the minimum wage is not a policy option. It is a logical truth. If different people get different wages, then the wage is not guaranteed. The lowest wage is the true guarantee.

The proposal is to have the JG wage be at a living wage, which would be rather higher than current minimum wages. Nobody would then work at a crappy job for subJG wages, so the JG would become the floor. The JG is the best and cheapest way to enforce minimum wages laws.

If wages aren't sufficient to provide food and decent and safe shelter then the state can make up the difference A terrible idea. This is just maintaining inefficient, worthless, unproductive private sector jobs and subsidizing employers. If an employer can't find enough customers to pay his workers a living wage in an MMT boom economy, he should go bankrupt, not be subsidized.

Since it doesn't really address the structural problems native to wage labor, I'm afraid it's ultimately a useless and temporary bromide. It directly addresses the primary structural problem, that causes all the others. Everybody has a right to a decent job. Our insane, illogical, stupid societies deny this right.

In the interim, and even though it might not be much better, I'd much prefer a BIG to a JG. See Wray's recent posts at economonitor for why the (big) BIG is just fakery.

Malmo's Ghost said...

Calgacus,

The minimum wage is a cruel joke. Few can survive on it alone. If the minimum wage is, say, $30 an hour, then we're talking. Otherwise it is not only insulting, it's sadistic.

Malmo's Ghost said...

BIG isn't perfect but it's a damn site better than the JG, no matter what Wray says.

At least it recognizes the dignity of the human being relative to the JG.

Tom Hickey said...

This is just maintaining inefficient, worthless, unproductive private sector jobs and subsidizing employers. If an employer can't find enough customers to pay his workers a living wage in an MMT boom economy, he should go bankrupt, not be subsidized.

Worse than that large corporations like Walmart and the big fast food chain can afford higher wage easily by reducing profit share but Wall Street would not like that. So they pay under the living wage to force a govt subsidy. This just incentivizes Sam Walton's low wage law benefit business plan, further extending throughout the economy.So let's call it what is, a corporate subsidy.

Malmo's Ghost said...

Tom,

The JG @ minimum wage does no better than Walmart or McDonald's. There still isn't enough income to survive on, so the state must make up the difference, no? Of course if the JG is at a living wage then no such problem.

Tom Hickey said...

Crazy to acquiesce in a minimum wage plus benefits that is below poverty line since it just invites govt subsidizing the difference in transfer payments. Why no one is talking about this either politically or economically, I don't know.

Calgacus said...

The BIG held out by many of its proponents, the big BIG, is a joke, a bait and switch based on magical thinking. Give everybody a lot of money for nothing, people stop working and money becomes worthless. Why not propose giving everyone a house on the moon and their own unicorn?

The JG recognizes human dignity far more than a big BIG, because it is real, can, has and will work, very well. What ordinary people, what the poor and the unemployed want is jobs, not a fake and ultimately worthless handout, which they can & will see through in ten seconds, unlike those more "educated" in "economics". Sure, a small BIG, a negative-income-taxy BIG is good. But without a JG to protect it, it is doomed.

The JG proposal is for a living wage. People may have different ideas about what that means. Almost nobody thinks the current minimum wage is a living wage. And yet even a JG at current levels would find millions of takers and would enormously improve the economy. The JG even at the current McWage would embark on projects that would improve the JG workers' communities.

I think the US economy could easily afford a $30 JG wage with no inflation - but it would require some economic restructuring along the lines that you propose. But the JG is the first, the essential, the most important step to that restructuring, which would inevitably fall in its wake. And the bad guys damn well know that.